Orange Mortgage: an ING Direct Loan Product

Orange Mortgage is a home mortgage product offered by ING Direct, a financial institution which operates largely online. The Orange Mortgage landing page promotes this product as having low rates and low closing costs, as well as a simple application process.

How does this product stack up to other mortgage products out there? Let’s take a look:

Low Closing Costs: Closing costs are the costs you pay when a financial institution writes you a loan. These expenses are generally paid either out of pocket when the loan is written, or are included in the total amount of the loan, and paid off as the loan is paid off. Anyone seeking a loan has a right to receive a good-faith estimate of closing costs, including both out-of-pocket fees, and fees that will be rolled into the loan. Be sure to ask your lender for this.

ING Direct’s Orange Mortgage claims to offer a closing cost of only $395, presenting a chart where this appears to compare favorably with other lenders. However, a key detail is omitted from this chart (it’s found in the fine print above): “Keep in mind, this chart ONLY compares bank fees – there are other closing costs.”

What this is basically saying is that you only pay $395 out of pocket… but that there are other expenses which will simply be included in the body of the loan. Instead of paying them up front, you’ll pay them over time, with the rest of your loan.

ING Direct didn’t invent this way of doing business. Most lenders today will let you close with only a small amount of out-of-pocket money. Wells-Fargo, for example, will let you close for a comparable $475 out-of-pocket application and appraisal fee.

Keep in mind this convenience comes with a price – namely, that you’ll be paying interest on those closing fees. Five thousand dollars worth of closing fees might cost you over $16,000 over the life of a loan.

Low rates: While the Orange Mortgage does offer low starting rates in the 3s and 4s, the buyer should be aware that this is an adjustable rate mortgage (ARM), and the rate will change. Depending on whether or not the buyer opts for the 7/1 or the 5/1 mortgage, the rate will adjust after seven or five years, and every year thereafter. ING Direct optimistically “projects” a future rate in the 3s, but anyone seeking to finance a home should be wary of anyone who claims to predict the future like this.

On the plus side, this adjustable rate can never increase more than 2% per year. The rate can also never be more than 6% greater than the starting rate. Still, it’s doubtful that a homeowner who finds themselves paying at a rate of 9% or 10% in future years will be pleased.

Plus, should you decide to pay off this mortgage early, to defray some of the interest, you’ll pay a 3% penalty for the privilege. This is not standard operating procedure, and a home buyer can easily find a loan that does not penalize someone for pre-payment.

Rates Guaranteed: ING Direct makes a big deal about the fact that you can “lock in” a rate and have it guaranteed for 60 days (for new home purchases) or 30 days (for refinances). This fact should not make or break any lending decision, as this is a service offered by most lenders.

Easy Application Process: ING Direct offers a fully online application process, and promises that in most cases a loan decision can be delivered in minutes. While this is convenient, it’s also not terribly original – almost all banks today are set up to do this.

In closing, the ING Direct Orange Mortgage offers many conveniences that make it easy to take out a loan, but homeowners may end up paying for those features in the long run.